CORE COMPETENCIES

Distribution & Logistics

Home Depot has twice the number of stores that its nearest competitor, Loew’s, has.  It is also in the process of purchasing its own suppliers, such as Apex plumbing.  The Economies of Scale achieved by Home Depot should ensure the buying of products from its value chain in the largest amounts possible and this, in turn, can give the company the ability to offer the among the lowest prices in the home improvement industry to its customers. 

Home Depot has also employed EDI, electronic date interchange, in order to maintain a superior inventory management among its stores and suppliers.  The overall distribution that Home Depot has operating between its stores and suppliers is present because of the effective use of its core resources of personnel, company size, and financial strength.

Service Delivery Process

This competency encompasses in-store service, which relates to the Home Depot staff and the quality and convenience of the stores themselves, and product selection, which is expected to be wide and reasonably priced.  All of Service Delivery Process is in relation to how well the customer is able to get the product that he wants and a price he will pay. 

One can go back to the Mission Statement and find that Home Depot considers customer service its number one core value.  With respect to this, Home Depot draws on the core resource of Personnel.  Both the management and the sales force are trained to help the customer get exactly the service they wish when they enter the store.  Home Depot wants its staff to be the most knowledgeable and helpful.  Home Depot also draws its company size and strength to deliver the widest selection, with the lowest prices.   The type of outlet is also varied with the opening of the Village Hardware stores and Expo Centers.

Competitive Expansion

Home Depot, which claims approximately 10% of the DIY market, will launch their long awaited ecommerce platform in 2000 and also expand from its current 900 to a total of 1,900 in North America by 2003.  Other companies may expand at a similar percentage rate, but the financial situation of Home Depot makes the growth much less risky. 

The company is also expanding into different types of stores – Village Hardware stores and Expo Centers.  Taking full advantage of opportunities in the US and abroad as well as through technological advancement, the company grows at a rapid rate.  It also is expanding into its own supplier base with the purchase of middlemen, and the suggestion to other un-owned middlemen that they refrain from Internet sale activity so as not to interfere with Home Depot ecommerce plans.

Do-It-Yourself Experience

The Do-It-Yourself’er comes to Home Depot for the prices, selection, and, most importantly, service offered in the stores.  The lifestyle these DIY customers enjoy must be an enhancing experience in order to maintain customer loyalty, as choices in home improvement retail become ever present.  Not necessarily with just rival stores, but also Internet shopping.  Also part of the DIY Experience is advertising.  Home Depot, through TV ads, radio, direct mail, and sports sponsorship, not only want to advertise the store, but also give Home Depot shoppers a particular image of themselves.  Home Depot is striving to present to its customers a lifestyle that is associated with shopping at their store.  Characterized by success, can-do attitude, and family, this self image is what Home Depot wants its customers to feel they, themselves, are all about. 

Customer Value Relationships

Distribution & Logistics

Service Quality – 3 (moderate)

The Distribution and Logistics refers to the overall ability of Home Depot to deliver the necessary elements to enable the Service Delivery Processes to function.  Home Depot has very good economies of scale because of its size, and this has a moderate relationship to Service Quality.  Service is directed by management, both upper and in-store over the day-to-day store staff.  It relies on effective Distribution and Logistics to function effectively

Quality of Products – 1(weak) 

Distribution and Logistics has a weak relationship to Quality of Products.  This core competency is not focused on what is being delivered.  It is focuses only the effectiveness of the delivery processes.

Selection and Availability – 9 (strong)

Here is where strong distribution and logistics, which Home Depot has, can make an effective and direct difference in the products offered in store.  The selection and availability of Home Depot is evident in the wide range of name brands and Home Depot owned lines of products offered.  Distribution and Logistics enables the selection to occur.

Getting Around the Store – 1 (weak)

Distribution and Logistics does not relate with Getting Around the Store except in a very weak way.  This is a customer value that has little to do with the purchasing power or delivery effectiveness of this giant chain.  The only relationship that exists is weak and it is in the fact that the great deal of products purchased and available on sale in Home Depot’s may affect the size and confusion of the “big box” stores.  Home Depot scores only satisfactorily on this point with customers and it may not be coincidental that Home Depot is also the biggest of the stores examined in the customer value poll.

Service Delivery Process

Service Quality – 9 (strong)

Service Delivery Process and Service Quality are very closely linked.  Quality of service is the number one value that customers assign when evaluating home improvement retail.   The Service Delivery Process of Home Depot is varied with types of stores – big box, Village Hardware, and Expo Centers.

Quality of Products – 3 (moderate) 

As with Economies of Scale, the relationship between Service Delivery Process and Quality of Products is present, but not strong.  Home Depot offers a great variety of products and very knowledgeable sales staff, but this does not necessarily equate into the best products being offered.

Selection and Availability – 3 (moderate)

A moderate relationship exists because the selection and availability of products is directly related to the core competencies of economies of scale and DIY experience, but not necessarily direct Service Delivery.  This competency ensures quality sales people and easy customer purchase.  It affects selection and availability as a necessary by-product of the quality of the sales person’s knowledge with what a customer might really need, without the examination of alternatives.  Without strong availability, service quality will suffer.

Getting Around the Store – 3 (moderate)

As opposed to Selection and Availability, Getting Around the Store is related moderately to Service Delivery Process.  It is ultimately the responsibility of Home Depot to provide quality service, and difficulty in “getting around the store” is a failing of this competency.  It is a moderate relationship because this customer value is not directly controlled or affected by the Delivery Process.

Competitive Expansion

Service Quality – 3 (moderate)

As Home Depot expands into ecommerce, foreign markets, and other domestic outlets, such as Village Hardware and Expo Centers, the Service Quality is moderately affected.  There is a perception that overall industry service is down, and Home Depot’s aggressive expansion has an unintentional side effect of drawing corporate concerns away from service quality.  It is moderate, but not strong because the relationship is not direct.

Quality of Products – 3 (moderate)

Again, there is no strong relationship between Home Depot’s emphasis on aggressive expansion, but we still find that Quality of Products is still moderately related to this competency.  With growth and new business relationships, the range of products offered in Home Depot stores will widen and this should also increase the quality level.  Hence the moderate relationship.

Selection and Availability – 3 (moderate)

With competitive expansion into the Internet, growth in new markets, and control over its suppliers, the selection and availability of products will be increased.  The relationship between Selection and Availability and Competitive Expansion is not direct, but is as strong, if not stronger, than Quality of Products and Service Quality.

Getting Around the Store – 1 (weak)

Competitive Expansion should not affect this customer value.  It is something on which Home Depot should concentrate, but may not focus on because of the emphasis on expansion.  A weak link can be established using this explanation, otherwise there is no relationship between the customer value and the core competency.

DIY Experience

Service Quality – 9 (strong)

The DIY experience is directly related to the core competency of Service Quality.  What Home Depot brings to the customer be it in product or sales process, the DIY is looking for service most of all.  This is the relationship that home improvement retailers must focus on to ensure competitive advantage. 

Quality of Products – 3 (moderate)

Not as strong of a relationship as Service Quality because the DIY experience is not as directly based on Quality of Product.  There is a moderate relationship because customers do value quality products, but the competency of DIY experience is not as focused on it.

Selection and Availability – 9 (weak)

Another crucial factor relating to the DIY experience.  The relationship is strong because the selection and availability is a direct factor in customer value ratings.  More so than Quality of Product because the selection and availability is more closely related to the service value of Home Depot and other retailers, as well.

Getting Around the Store – 3 (moderate)

Getting Around the Store is a measure of customer inconvenience.  The relationship is present because it is probably another example of a core competency on which Home Depot is focusing unintentionally affecting store size and layout.  The relationship is moderate because this customer value and DIY Experience are not reciprocal, but they do affect each other.

 Core Competency Value Contributions

Core Competency Cost Contribution

            Distribution and Logistics requires the largest portion of resources for Home Depot. It encompasses the majority of the operating costs associated with running the largest home improvement retail chain (property leasing, operating costs, shipping, and networks). Creating the DIY experience includes all advertising, personnel, and promotional costs as well as the necessary resources for creating the Home Depot shopping experience. Competitive expansion requires the third largest portion of resources. It entails the money and resources needed to maintain its current domestic and international expansion plans of 900 stores by 2004. It also encompasses the resources used to create the new Expo and Villager Stores. The service delivery process is the final category and requires the least amount of resources. This activity includes the training of all service-related personnel, and all other costs required in providing Home Depot’s level of customer service.

Core Competency Value / Cost Efficiency

            Service Delivery Process provides the highest ratio (2.02) in terms of the core competencies value/cost efficiencies. Since it stands out alone as the highest return ration for

contribution, this will likely be the area where Home Depot can make the largest improvements in terms of improving its core competencies. Competitive Expansion and DIY Experience come in second with 1.14 ratios. Since this ratio is over 1.0, meaning there is more to be gained from contribution, these two core competencies could also be used as a part of strategic development. The final and lowest ratio (0.36) comes from Distribution and Logistics. This indicates that Home Depot will get substantially lower returns for future resources they allocate to this core competency.

Select Core Competencies for Strategic Development

Based on the matrix, we can observe which competencies contribute significantly to customer value in terms of resources required. The core competencies with the higher return ratios should be considered for strategic development.

Service Delivery Processes

Since this core competency has the largest impact on the Retail Home Improvement industry, it should be selected for development. Service Quality is the most important customer value factor. According to Consumer Reports, none of the major players were able to earn full marks for service quality. The home improvement retailer who can improve the service delivery process the most will be able to differentiate themselves from the others with outstanding customer service, and attract a greater market share. 

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